Should You Discount Your Rates to Win New Business?
When you discount your rates, that discount comes straight out of your profits, which means you're often taking a bigger hit than you think.
Retail businesses always seem to be running some kind of sale, special offer, or discount on their products, but should freelancers follow suit?
Well, that depends on why you are discounting your prices.
If you're doing it because you genuinely want to (and can afford to), then go for it. But if you're doing it because a prospect is bullying you into it, then I would advise against it.
Discounting your rates might seem like a good way of getting a bit of extra business in, but it comes at a cost.
Downsides of discounting
Discounting your services can damage your income, your reputation and your motivation levels.
Costs you more than you think
When you discount your rates, that discount comes straight out of your profits, which means you're often taking a bigger hit than you think.
Let's say your hourly rate is £100. You do ten hours of billable work, which works out at £1000. Your costs work out at £600, so your profit is £400.
If you decide to offer a 10% discount, your rate goes down to £90 per hour. So for ten hours of work, you now only earn £900, but your costs haven't changed - they are still £600. So your profit is only £300. That's 25% less profit.
Unfair to clients paying full price
Ok, maybe your costs aren't all that high and losing £100 on a ten-hour project doesn't seem so bad if it means winning the work. After all, £300 profit is better than nothing, right?
Fair enough, but is that fair to the clients who are willing to pay full price?
Are the clients paying £100 per hour getting a better service than those who only pay £90? And if they aren't getting a better service or anything extra, why should they have to pay more?
Devalues your service
When you discount your rates, it devalues your service. By agreeing to cut the price, you're essentially saying what you do isn't worth what you charge, because if it is worth what you charge, why would you offer a discount?
Your price is your price for a reason. You clearly feel you can justify that price, so stick to your guns. If your fees aren't in line with someone's budget, that's their problem, not yours. They can either find someone cheaper or increase their budget.
There will always be someone who thinks you are too expensive or who doesn't fully understand the value of working with you.
If you're constantly discounting your prices, then you probably have a marketing problem or you need to work on your sales skills.
Opens you up to future discount requests
If you agree to an initial discount to win a new client, who's to say they won't expect the same rate in the future?
You might tell them it's a one-time deal, but will you be strong enough to stick to it if they say they'll only give you more work if you stay at the lower rate? They already know you can do the work for less than full price.
Or what if they tell other people your rates are open to negotiation? Do you really want a reputation for being cheap?
Should you ever agree to discount?
I'm not saying you should never discount your prices. Sometimes there's a good reason to take on work at a lower fee than usual.
Maybe you've had a tough few months and you really need the money. Or perhaps the project is so appealing, you're happy to do it for a lower rate.
But if you do decide to discount or accept a reduced fee, make sure it's your decision and you're not making it a habit.
If your prices are consistently low or you're constantly taking on work at a discounted rate, you're going to be filling your days with low-paid work.
And when your days are full of low-paid work, it's very hard to find time for your marketing. If you're not marketing, you won't attract the higher-paying work, which means you have to take on anything that comes your way. You can quickly end up trapped in a cycle of having to reduce your rates just to get enough work in to pay the bills.
Take it from someone who has been there, done that, it's a shit position to be in, and you'll find yourself falling out of love with your business. Luckily, I pulled myself out of that cycle, and you can too (my book will teach you how).
How to handle a haggle
Some people will agree to your price without question. Others might attempt to negotiate a cheaper rate.
Don't take offence. Some people just don't understand the implications of what they're asking or don't see a problem with haggling.
It doesn't necessarily mean they don't value what you do. They might just be trying their luck. There's nothing wrong with wanting to save money - who doesn't love a bargain?
But just because someone asks for a discount or implies you are too expensive, it doesn't mean you have to lower your fees.
Standing firm on your pricing doesn't necessarily mean you won't get the work.
Be polite but firm
Explain that your price is non-negotiable. You can always provide a reminder of what they'll be getting for their money if you feel they haven't quite understood the value in what you offer.
Depending on the type of services you sell, you might have a cheaper package or an alternative option you can offer them. But if you don't, it's ok. You might not feel comfortable delivering a lower-quality service, and that's absolutely fine.
"If I lowered my price, I wouldn't be able to offer a standard of service I'd be happy with, and that wouldn't be good for either of us."
Don't feel pressured into lowering your rates
Some people act as though they are doing you a favour by offering you work. They aren't. You have a service they want or need, and they should pay a fair price for it, so don't let anyone bully you into lowering your rates.
If a prospect is rude, tell them you don't think you are the right fit and wish them luck in their search.
Remember why you went into business for yourself in the first place. I doubt it was to work with people who don't value what you do and think you should be grateful for their business, even if they aren't willing to pay a decent rate for it.
Work out why you keep getting discount requests
Some people are just taught to ask for a discount as standard, so if you're only getting the odd request to discount, I wouldn't worry.
But if you are regularly being haggled down on price, then you might have a problem.
Unless you are charging the highest prices in your industry, the problem is probably not your pricing. If you were "too expensive", then other people wouldn't be able to charge more for the same type of thing.
So if your pricing isn't exorbitant, then the problem must be with your marketing or sales process.
Either your marketing is attracting price-buyers who are only interested in getting the lowest price. Or you're not doing a good enough job of demonstrating the value you add.
Do you need to revise your marketing messages? Would some sales training help? How can you attract people who value what you do and are prepared to pay a decent rate for it?
If you need help figuring that out, then why not book 90 minutes with me? I'll help you find the gaps in your sales and marketing process so you can attract (and convert) more of the clients you want (at the prices you deserve).
